Privilege

Travelling abroad for work? What should you do if a Customs and Border Patrol agent, claiming lawful authority, demands that you unlock your computer or thumb drive or cell phone — full of client confidential information — and hand it over to be searched as you cross the U.S. border?

The confidentiality concern is more than hypothetical. According to the Department of Homeland Security, in February 2017 alone, CBP agents searched more than 5,000 cell phones, laptops and other devices. That’s as many searches as in all of 2015. CBP policy apparently permits U.S. customs agents to review any information that physically resides on travelers’ electronic devices, with or without any reason for suspicion, and to seize the devices pending inspection.

The ABA voiced concern in May, requesting that the Department of Homeland Security revise CBP’s procedures in order to better protect client confidential information from search or seizure at border crossings.

Evasive tactics necessary?

Under every state version of Model Rule 1.6, you have an ethical duty to safeguard the confidentiality of client information in your possession, and “few principles are more important to our legal system,” the opinion notes.

The thoroughly-reasoned and detailed New York opinion concludes that Rule 1.6, coupled with Rule 1.1 (Competence), raises obligations before a lawyer approaches the U.S. border; at the border when an agent seeks access to a device; and after an agent has reviewed clients’ confidential information.

Before crossing the border, Rule 1.6(c) and its comments, which require “reasonable efforts to prevent … unauthorized access to” client confidential information, means that you must take reasonable precautions in advance to avoid disclosing such information unless authorized by the client (which is unlikely). Depending on the circumstances, including the sensitivity of the information, these efforts may include not carrying any client confidential information across the border. If so, the opinion suggests: securely backing up client information and then crossing the border with a blank “burner” phone or laptop; turning off syncing of cloud services; signing out of web-based services; and/or uninstalling applications providing local or remote access to confidential information.

At the border, Rule 1.6(b)(6) and its comments come into play. It permits lawyers to disclose confidential information to the extent reasonably believed to be necessary when required “to comply with other law or court order,” including “a governmental entity claiming authority pursuant to … law.” But, the opinion cautions, disclosure is not “reasonably necessary” to comply with law if there are reasonable lawful alternatives to disclosure. The opinion concludes that “it would be an unreasonable burden” to require a lawyer to forgo entering the U.S. or to allow herself to be taken into custody or litigate the lawfulness of a border search. But the opinion also says that lawyers have a duty not to comply “unless and until” the lawyer “undertakes reasonable efforts to dissuade border agents from reviewing clients’ confidential information or to persuade them to limit the extent of their review.” To facilitate that challenge, you should carry ID confirming that you are a lawyer, notify agents that your device has client confidential information on it, request that the agents limit their review, and ask to speak to a superior officer, says the opinion.

After a search or seizure of client confidential information, Rule 1.4 (Communication) requires that you notify affected clients about what occurred and the extent to which their confidential information may have been reviewed or seized. That communication will let the client decide on possible responses, including a potential legal challenge.

Globe-trotting implications

Tennessee ethics lawyer Brian Faughan shared his comments on this opinion under the headline “Practicing law like it’s espionage.” The ways to carry out the potential duty to avoid taking confidential information across U.S. borders, as well as the other recommendations in the New York opinion, indeed make me think of spy craft, and to wonder if we are entering the world of novelist John LeCarre. That’s an uncomfortable thought — but under the reasoning of this opinion, such considerations are necessary as a matter of ethics.

The former general counsel for clothing retail giant Zara USA, Inc. can’t claim privilege in his discrimination-wrongful discharge suit for e-mails he created on a company-issued computer, said New York’s First Department court of appeals in an opinion last month — but the same material might be protected by the work-product doctrine, the court held.

The discovery dispute and ruling arose from a now-common scenario: an employee who uses a company computer for personal communications about litigation against the company — and apparently, even corporate GC’s do it.

GC suit alleges discrimination, harassment

The backstory starts in June 2015, when the former GC sued his employer for bias and harassment. In his complaint, the GC alleged that, for instance, after learning that he is gay and Jewish, company personnel sent sexually-charged e-mails to him, used Yiddish expressions in speaking to him and sent his long-time partner an e-mail with an image of a tattooed penis. The GC alleges that after he complained about his treatment, company leaders told him that his job was in jeopardy, and eventually terminated him.

During discovery, Zara sought documents from the former GC’s laptop, asserting that it and its contents were company property under a policy that the GC had helped draft. The policy was in the company employment handbook, and like many such policies, it:

restricted use of company-owned devices to “business purposes”;

specified that content created/stored company resources belonged to Zara “exclusively”;

emphasized that employees lacked any expectation of privacy in information transmitted or stored on company computers; and

said that Zara could access such information without prior notice.

No privilege for documents on employer-issued computer

In the trial court, the GC won a motion for protective order. The judge wrote that Zara seemed to be “merely trying to gain litigation advantage by accessing documents that may be privileged,” referring to 101 documents on his computer that the GC created after the litigation began.

But the First Department found no privilege, reasoning that given the employee handbook provisions (which he had at least constructive knowledge of), the GC had no reasonable expectation of privacy, and thus lacked “the reasonable assurance of confidentiality that is foundational to attorney client privilege.”

This ruling is consistent with the case law in most jurisdictions, holding that attorney-client privilege does not apply to communications between an employee and the employee’s personal lawyer if made using the employer’s computer network and if the employer has informed employees that they have no expectation of privacy with respect to communications using the employer’s e-mail system.

Will work-product work?

However, the appeals court also said that even though Zara reserved the right to access company-issued computers, it never did so, and so there was never any actual disclosure to any third party of the material that the former GC sought to shield.

As a result, even though attorney-client privilege was unavailable, the work-product doctrine might be applicable if no one other than the former GC and his counsel had actually reviewed the materials. Accordingly, said the court, the GC’s use of Zara’s computer “for personal purposes does not, standing alone, constitute a waiver of attorney work product protections.”

Now, on remand, it will be up to the trial court to review the documents in camera and determine the work-product question.

At the crossroads

This case is at the intersection of employment law and privilege law, with facts that have become more common recently. In fact, the First Department cited its own privilege decision earlier this year in a similar dispute over access to e-mails that Marvel Entertainment’s CEO exchanged with his wife using the company e-mail system. There too, the court found no privilege (spousal, this time), but possible work-product protection.

The twist in this latest case is that it was Zara’s former chief legal officer who used his company-issued computer to communicate with his private counsel — making this decision one that GC’s should take note of.

Whether you are in-house or outside counsel, your clients want the attorney-client privilege and/or work-product shield to apply to materials created as part of an internal corporate investigation. But the applicability of these doctrines is very fact-specific, and difficult facts can doom that desired outcome. That was the conclusion of the Washington, D.C. district court in an opinion last month involving the D.C. transit authority board.

Development dispute

The transit authority was negotiating with a developer on a construction project. After discussions broke down in March 2010, the developer sent a letter to the transit board detailing what it believed to be improper actions of the authority and its board, and indicting that it would seek its available “remedies at law or in equity” if negotiations did not resume. The alleged “improper actions” (set out in an earlier decision), centered on a transit board member who was also a D.C. city council member and who favored a different developer — a major campaign contributor — for the project. The situation generated a “public outcry.”

Over two years later, the transit authority hired Cadwalader, Wickersham & Taft to “provide investigative and legal services” regarding the board’s actions in connection with the failed project.

The investigation included interviews with current and former transit personnel as well as non-transit-personnel. It generated 51 interview memos, each marked “Attorney Work Product.”

After Cadwalader submitted its report and recommendations, the board decided to release it to the public. The report cited and referred to the interview memos prepared during the investigation. The developer sued the board, and sought the memos, arguing that the work-product doctrine did not apply and that the board had waived any attorney-client privilege.

The district court agreed, denied the board’s motion for protective order, and ordered the transit authority to turn over all the memos, subject only to some limited redaction.

Timing is (nearly) everything

The work-product shield did not apply to the 21 memos of interviews with non-transit-board personnel, the court said, because too much time had elapsed between the letter threatening legal action and the preparation of the memos. Even if litigation could reasonably have been anticipated at the time the board received the letter, it did not hire Cadwalader until two years later, and did nothing in the interim. Although acknowledging that “there is no standard or rule regarding how close in time potential litigation must be,” two years was too long, the court said.

Further, the D.C. Circuit has adopted the “because of” standard to assess the motivation for creating materials later claimed to be attorney work product. For instance, Cadwalader’s recommendation to the board said it had been retained “to provide general governance recommendations” and to evaluate the board’s code of ethics. The court said the evidence showed that the board did not commission the investigation “because of” possible future litigation, and would have conducted an investigation to evaluate its business and ethics practices even without any anticipated litigation.

Attorney-client privilege waived

Citing D.C.’s strict definition and narrow construction of privilege, the court also held that no privilege shielded the remainder of the memos, created after interviews of transit authority personnel.

Cadwalader’s report, with its legal and factual conclusions about the construction project negotiations, had originally been intended to be disclosed only to the transit board. Intentionally releasing the report to the public, with multiple references to at least 23 different witness interviews, was not consistent with “zealously protect[ing]” the privileged materials. Rather, publication constituted a subject-matter waiver of the privilege as to the memos used to compile the report, and “fairness dictat[ed]” that the memos be considered together with the report, the court said.

Takeaways?

In the investigation context, facts dictate the outcome of a privilege battle. Here, the transit authority couldn’t get out from under some difficult facts that sank its work product and privilege arguments: waiting so long after the threat of litigation to launch an investigation; and making the report public, which was likely a political necessity in any event. The court’s strict holdings were the result.

Thinking of using a public relations firm to help manage a corporate crisis? Divergent interpretations of the privilege rules have led to differing legal opinions on whether communications between a PR firm and the company or defense counsel are privileged. A California state court of appeals decided last month that such communications were not privileged, illustrating the privilege risk that can arise in communications with PR firms.

No California exception available

Behunin v. Superior Court involved an unsuccessful real estate investment deal. “As part of a plan to induce the Schwabs to settle” the resulting lawsuit, Behunin’s lawyers hired a public relations firm to create a website linking the Schwabs and their Indonesian investments to the family of former Indonesian dictator Suharto.

In Schwab’s suit against Behunin for libel and slander, he sought to discover communications among Behunin, his counsel and the PR firm about the creation of the website.

The court of appeals, denying a writ of mandamus, concluded that although California law may extend privilege to some communications with a PR consultant, privilege did not apply here: Behunin failed to prove that communications with the PR firm were reasonably necessary for his lawyer to represent him in the underlying case.

Section 952 of California’s evidence code codifies exceptions to the usual rule that disclosing a lawyer-client communication to a third person destroys the privilege. But the Behunin court bluntly said in this case that “There is no ‘public relations privilege’ in California,” and that no exception to the general rule applied to the PR firm’s involvement in generating negative publicity that “would help get the Schwabs to the settlement table.”

Behunin did not provide evidence proving that the communications among the lawyer, the PR consultant and himself were reasonably necessary to assist the lawyer in representing him, the court ruled. Rather than being able to show that the lawyer and consultant were involved together in “developing, discussing, or assisting in executing a legal strategy,” it appeared that the lawyer only acted as a liaison in hiring the PR firm.

Nor, said the court, was the PR consultant the functional equivalent of the client’s employee (a status which could potentially raise the privilege shield). There was no detailed factual showing that the consultant was responsible for a key corporate job, had a close working relationship with the company’s principals on critical matters, and had information that no one else at the company possessed.

Differing opinions on PR firms

The application of privilege and work-product principles has generated opinions that have extended the privilege to communications among lawyers, clients and PR firms. See King Drug Co. v. Cephalon, Inc. (E.D. Pa. 2013) (privilege applied; consultants preparing business and marketing plans were the client’s “functional equivalent”). Other opinions are to the contrary. See Kirby Pemberton v. Republic Services, Inc. (E.D. Mo. 2015) (no privilege; no Missouri authority extends privilege to public relations consultants, and privilege should be narrowly construed); McNamee v. Clemens (E.D.N.Y. 2013) (no privilege; PR firm only provided standard services not necessary in order to provide legal advice, and therefore disclosing documents to firm resulted in waiver).

Takeaway – caution required

Managing the media can be an important part of managing a corporate crisis. Creating and preserving privilege in this setting demands caution, and involves a nuanced analysis that can be both fact-specific and jurisdiction-specific.

Stephen Williger, of Thompson Hine’s Cleveland office, will present the keynote address, “Legal Aspects of Corporate Crisis Management,” at the 2017 Continuity Insights Management Conference in Denver, April 24-26. He will speak on the legal aspects of pre-crisis planning, mitigation, remediation, and recovery. Conference programRegistration

A whistle-blowing general counsel won an $8 million federal jury verdict earlier this month, in a case that might encourage other GC’s to call out corporate wrongdoing.

Compensatory and punitive damages

After deliberating only three hours, the jury in Wadler v. Bio-Rad found that the GC had a reasonable basis for reporting his suspicions about the company’s Chinese sales operations to the organization’s audit team.

The GC’s allegations prompted an internal investigation by outside counsel, which concluded that the sales team had not violated the Foreign Corrupt Practices Act.

But the jury found that the company had retaliated against the GC by firing him after the report, in violation of the Sarbanes-Oxley Act, and that absent the report, he would not have been terminated for legitimate reasons.

The award to the GC included $5 million in punitive damages. Speaking to Law360 (subs. req.), the GC’s lawyer attributed the punitive damages to the company CEO’s creation of a back-dated negative performance review; computer metadata proved that the review hadn’t been created until after the GC had been fired.

Does SOX protection trump company’s privilege?

Judgment on the jury verdict was entered on February 10. It will almost certainly be the subject of post-trial motions and possibly an appeal.

But the verdict stands out as a rare trial win for a GC in a whistle-blower case based on retaliatory firing. Such suits have often been foreclosed before trial because of restrictions on a company lawyer’s ability to use confidential information of the employer in proving the GC’s case.

In the Bio-Rad case, however, the federal magistrate judge found at the end of 2016 that the whistle-blower protections of SOX trumped the company’s attorney-client privilege, and turned back the company’s motion to preclude use of privileged information at trial.

The GC’s ability to use this information as evidence arguably spelled the difference here.

Key factors in the magistrate judge’s ruling:

as a federal claim asserted under SOX, the federal common law of privilege applied; that took the case outside the scope of the California Supreme Court’s 1994 ruling in General Dynamics Corp. v. Superior Court, which had limited retaliatory discharge claims to those that could be established without breaching the attorney-client privilege;

the text and structure of SOX doesn’t indicate that in-house lawyers aren’t protected from retaliation, and SOX § 1514(A)(b) and particularly the SEC’s final rule (17 C.F.R. § 205) preempts the California state ethics rule on client confidentiality;

Model Rule 1.6 is the guiding standard, which — unlike the California state rule — permits a lawyer to reveal information relating to the representation of a client to the extent the lawyer reasonably believes necessary to establish the lawyer’s claim in a controversy between the lawyer and the client; and

Bio-Rad made so many disclosures to the SEC, the DOJ and the DOL during the course of previous investigations and administrative proceedings, and to the court in the pre-trial phase of the case, that the company waived the privilege as to many communications.

The SEC had filed an amicus brief during the briefing on the company’s motion to exclude, supporting the position that the magistrate judge took — that SOX trumps state legal ethics rules regarding client confidentiality.

Trend or outlier?

Whether the Bio-Rad case will be upheld, and whether it is a trend or an outlier, remain to be seen. But in the short run, it may encourage other GC’s to blow the whistle.

In late December, a divided California Supreme Court ruled that legal-fee bills in closed cases aren’t necessarily covered by attorney-client privilege. Although the case involved a discovery demand sent to a government entity under the state’s public records act, some lawyers have questioned (sub. req.) how far the privilege limitations might go.

No “categorical” protection

The case arose out of a public-records request from the ACLU of Southern California to the Los Angeles County Board of Supervisors, seeking legal fee invoices that would reveal law firm billings to the county regarding nine lawsuits, each of which alleged the use of excessive force against inmates in the L.A. County jail system. The ACLU alleged that the county and its outside lawyers were pursuing “scorched earth” tactics in refusing to settle excessive-force cases, and were using taxpayer dollars to do so.

Three of the cases were closed; the county agreed to produce copies of those legal bills. But as to the six still-pending suits, the county said that they were exempt from the reach of the public records law under the attorney-client privilege exception, because “the detailed description, timing, and amount of attorney work performed … communicates to the client and discloses attorney strategy, tactics and thought process and analysis.”

On dueling writs of mandate, the intermediate state court of appeals found that the invoices were privileged and exempt from disclosure under the public record act. In a 4-3 vote, the state supreme court reversed.

The high court rejected “categorical protection” for billing records. Acknowledging that attorney-client privilege “no doubt holds a special place in the law of our state,” the majority wrote that it still only protects communications “made for the purpose of seeking or delivering the attorney’s legal advice or representations.”

Agreeing with the ACLU, the majority opinion said that “while invoices may convey some very general information about the process through which a client obtains legal advice, their purpose is to ensure proper payment for services rendered, not to seek or deliver that attorney’s legal advice or representation.” Fee bills, the court said, evoke “an arm’s -length transaction between the parties in the market for professional services” more than they do the “discreet conveyance of facts and advice.”

Information in the “heartland”?

What remains privileged in a fee bill, however, said the court, is information that “lies in the heartland of the attorney-client privilege” — namely everything in an invoice on an active and pending legal matter — even when the information is conveyed in a document, i.e. the bill, that is not “categorically privileged.”

The dissenters said that the majority’s ruling undermines a “pillar of our jurisprudence” by adding a “heretofore hidden meaning” to the state privilege statute, by shielding only communications that relate to the provision of legal consultation, even if they were otherwise transmitted confidentially between lawyer and client.

Following the majority’s rule, the dissenters wrote, means that lawyers must explain to their clients that confidential communications that were previously privileged “may be forced into the open by interested parties once the subject litigation has concluded. If a limiting principle applies to this new rule,” the dissent warned, “it is not perceptible…”

Privilege takeaways

The contents of fee bills have long been subject to attorney-client privilege when they reveal information about strategy, research topics and the like. As even the majority in this case notes, things like research topics or an uptick in the hours charged can be useful information to litigation opponents. But as California commentators point out, the case will likely be read as a narrowing of the privilege, and by introducing subjectivity into the test, will possibly encourage discovery forays against the fee bills of opposing counsel.

California lawyer Ellen A. Pansky, quoted in the ABA/BNA Lawyers’ Manual on Professional Conduct, noted that “the case leaves an interesting, unanswered question: What mechanism will courts use to resolve a privilege claim when a party asserts attorney-client privilege to only portions of invoices previously transmitted in a completed prior matter?” This might be an acute question, because California law seems to be that a court may not compel disclosure of attorney-client communications, even in camera, to rule upon a claim of privilege.

Particularly if you have cases in which California privilege law applies, stay tuned.

Old-time lawyers say that it used to be easy to get the court’s permission to withdraw from a case. You would just go to the judge and state, “Your Honor, we are not ready to go forward, and I am seeking leave to withdraw, because Mr. Green has not arrived.” You know: “Mr. Green” aka the moolah, aka the promised fee from the client. And, so the story goes, the judge would bang the gavel and grant your motion. (For a variation on the theme, see The Lincoln Lawyer, 2011, starring Matthew McConaughey.)

Such stories may be apocryphal, and whether true or not, hopefully we’ve come a long way in our understanding of the duties we owe clients in seeking to terminate our representation. When withdrawing requires permission of a tribunal, as it does under most court rules, a continuing ethics quandary has been how much information we are permitted to disclose to the court in justifying the request. On December 19, the ABA’s Standing Committee on Ethics and Professional Responsibility issued some guidance on the subject.

When you “may withdraw”

Model Rule 1.16(b), and state rules based on it, describe when you “may” withdraw from a representation, including when the client “substantially fails to fulfill an obligation to the lawyer regarding the lawyer’s services,” and the client has been warned that the lawyer will withdraw unless the obligation is fulfilled. Comment [8] gives the example of a client refusing to abide by an agreement concerning fees or court costs.

In civil litigation, the quandary arises because Model Rule 1.6 requires the lawyer to maintain confidentiality about everything “relating to the representation,” with only narrow exceptions, and Rule 1.16(c) requires the lawyer to comply with a tribunal’s rules in seeking to withdraw.

You have to phrase your withdrawal request to the tribunal in some way — but how far can you go in revealing the reason? In Formal Opinion 476, the ABA Committee acknowledged the difficulty, quoting one characterization of the issue as a “procedural problem that has no fully satisfactory solution.”

Will “professional considerations” suffice?

The ABA Committee noted that many courts will simply accept a reference to “professional considerations” that are prompting the motion to withdraw. (Sounds just a little like “Mr. Green.”) Rule 1.16 cmt. [3] endorses that approach, advising that the “statement that professional considerations require termination of the representation ordinarily should be accepted [by the court] as sufficient.”

But some courts won’t accept “professional considerations” as sufficient. The Committee cited withdrawal decisions from several jurisdictions that reflected details about the money owed by the client, the specific legal services carried out and other facts, indicating that the court had required much more than a generic statement from the lawyer about “professional considerations.”

The Committee pointed out that Model Rule 1.6(b)(5) and its cmt. [11] permit some disclosure of confidential client information in fee-collection suits by lawyers. A motion to withdraw for failure to pay is “generally grounded in the same basic right of a lawyer to be paid pursuant to the terms of a fee agreement,” said the Committee. Also, many court rules specify that motions to withdraw must be supported by “facts,” or “satisfactory reasons,” or similar showings.

Limit the info … but explain if required

Therefore, the Committee concluded, where the assertion that “professional considerations” justify withdrawal is not acceptable, and “when a judge has sought additional information” to support the motion to withdraw for non-payment, then the lawyer may “disclose information regarding the representation of the client that is limited to the extent reasonably necessary to respond to the court’s inquiry and in support of that motion to withdraw.”

What about the judicial officers considering such motions? The Committee advised that judges “should not require the disclosure of confidential client information without considering whether such information is necessary to reach a sound decision on the motion.” And if detailed information is required, courts should mitigate potential harm to the client, such as by allowing disclosure under seal or in camera, and by using redaction.

There will always be a tension between the duty of confidentiality and the necessity of providing reasons for a request to withdraw from representation. But Opinion 476 at least charts a path forward when facing the need to withdraw because of a client’s failure to pay.

A sharply-divided Washington Supreme Court has ruled that an organization’s attorney-client privilege doesn’t apply to post-employment communications between the company’s lawyers and its former employees. Although Newman v. Highland School District No. 203 adheres to a minority viewpoint, the implications are troubling, and the bright-line test that the state supreme court established in a case of first impression will require new cautions in cases where Washington state privilege law applies.

Talks with former coaches not within privilege

In Newman, parents of a brain-injured high-school football player sued the school district, alleging negligence. In preparing for trial, the school district’s lawyers interviewed the entire coaching staff, including several former coaches. When the interviews came to light at a former coach’s deposition, the plaintiffs sought discovery of the communications between them and the lawyers for the school district.

Holding that “everything changes when employment ends,” the court’s 5-4 majority ruled that “the privilege does not broadly shield counsel’s postemployment communications with former employees.”

The court said that once the employment is over, the principal-agent relationship is severed, and the former employees are like any other third-party fact witness. “The flexible approach articulated in Upjohn,” the leading case on corporate attorney-client privilege, “presupposed attorney-client communications taking place within the corporate employment relationship,” the court wrote.

Likewise, the Restatement (Third) of the Law Governing Lawyers § 73 cmt. [e] generally limits the privilege to the duration of a principal-agent relationship, the majority said. In addition, the court held, the rule promotes predictability and the “truth-seeking mission” of the trial process, which would be frustrated if the privilege were extended to cover post-employment communications with former employees.

“At odds” with Upjohn

The dissent in Newman disagreed with the majority’s adoption of a bright-line rule that would cut off the corporate attorney-client privilege at the termination of employment, and would exclude from its scope all postemployment communications with former employees, even when they have relevant personal knowledge regarding the subject matter. “[H]ad they remained employed, such communications with counsel would have been privileged” under the reasoning in Upjohn, the author of the dissent noted.

Upjohn’s functional framework does not look at the “formalities” of the employment relationship, said the dissenters; rather, the focus is on the purpose of the communications themselves and the benefits and goals of the privilege.

Therefore, the proper test, the dissent argued, is “Did the communications with the former employee, whenever they occurred, ‘relate to the former employee’s conduct and knowledge, or communication with defendant’s counsel, during his or her employment?'”

ACC: Majority doesn’t get it

The VP and chief legal strategist of the Association of Corporate Counsel, Amar D. Sarwal, quoted in Bloomberg BNA/ABA Lawyers’ Manual on Professional Conduct, called the Newman decision “troubling,” and “a bad idea for Washington, and bad for other courts to follow.” The decision reflects a “misunderstanding” of the way an organization gains and retains knowledge, which includes the knowledge of people who have left the organization, he said.

Practical implications

Washington’s supreme court got it wrong. Fortunately, its new bright-line rule is a minority viewpoint, and the privilege jurisprudence of most jurisdictions would follow Upjohn’s flexible approach. But even if you are not litigating a case in a Washington state court, Federal Evidence Rule 501 might point to Washington law as supplying the rule of privilege. Surmounting the challenge presented by Newman might involve exploring how an attorney-client relationship with an organization’s former employees might be extended or re-created for the purpose of communicating with them under the shield of privilege.

Regulatory compliance, cyber-security issues, herding legal operations staff — in-house legal practice is more complex than ever. One element that remains a continuing challenge is protecting the organization’s attorney-client privilege. Slipping up can risk the loss of the privilege in litigation involving the company, and can potentially result in an order to produce otherwise confidential communications to the other side. What are some signs that your law department needs to tune up its privilege IQ?

Some privilege ABC’s

First, for purposes of attorney-client privilege, the client is the organization, and in-house counsel is the attorney, just as much as outside counsel is. So communications between the law department and management, for the purpose of getting or giving legal advice, made in confidence and kept confidential, can qualify for privilege protection. The facts aren’t privileged, of course — only the actual communication.

Signs of trouble

Outside that rubric, however, issues could lead to the loss of privilege and disclosure of your confidential communications. Here are five signs of problems.

The department’s lawyers overshare. Sharing communications is good, right? Sometimes. But too much sharing is not. E-mailing confidential legal advice with a cc: to a long list of managers and employees who have no need to know it can risk the privilege — because it can be seen as negating the confidentiality that is a hallmark of a privileged communication. (On the flip side, however, when managers discuss business issues, dropping the name of the company GC into the cc: box does not make the communication privileged.)

You fail to mark your communication as privileged; or you mark everything as privileged. When opposing counsel makes a request for documents, nothing quite says “privileged” like a document that you have clearly marked “CONFIDENTIAL – ATTORNEY-CLIENT PRIVILEGE.” Failing to mark that e-mail or that report to management might not result in an order to disclose it — but why not express your intention at the time you make the communication? It can only help — unless you automatically mark everything that comes out of the law department as privileged (like your lunch invites and inter-office jokes). Then, a court reviewing your claim of privilege might be less likely to take you seriously.

You mix business advice with legal advice without distinction. We all know that the client expects in-house counsel to wear many hats, and giving advice on business issues comes with the territory. The problem is that business advice does not qualify for protection by the attorney-client privilege. If you mix business advice and legal advice in one memo without any distinction, you might be inviting a privilege problem. Some courts might parse the communication and shield the legal advice; but in other jurisdictions, the court will determine what the “predominant purpose” of the whole communication is, and you might come out on the losing side of that equation. It’s better to keep legal advice and business advice separate, if you can.

You haven’t educated managers and employees about the ground rules of privilege. You don’t have to make it a law school course, but it really helps if your client understands the basics: that they can’t share with others the privileged communications they have with you; that they should keep documents marked as privileged in a safe place; that making the legal department a cc: on an e-mail is not sufficient to make it privileged. Create a check-list for the department heads you work with. They’ll appreciate knowing the lay of the land.

You don’t acknowledge the nuances of foreign privilege law. The global nature of business and legal practice today means that you likely need to understand privilege law as it plays out internationally. Be aware of the issues. For instance, some courts hold that a legal practitioner functioning in a foreign country qualifies as an “attorney” for purposes of the privilege; others have ruled that communications with foreign in-house counsel are only privileged if they qualify under the privilege laws of the foreign country. Several countries (and the European Union) do not recognize any evidentiary privilege for communications between a company’s in-house lawyers and management or employees.

Addressing these potential problems should help maintain attorney-client privilege.

The attorney-client privilege covers ethics advice that lawyers get from their law firm’s general counsel, and the communications do not need to be disclosed to the client, said a unanimous five-judge panel of the New York Appellate Division last week, in a closely-watched case. In Stock v. Schnader Harrison Segal & Lewis LLP, the court ruled that the law firm was the “real client” in getting the advice from the GC, and held that the fiduciary exception didn’t apply.

Underlying case: tale of expiring stock options

We have been following developments since late 2014, when the trial court decided in Stock’s legal malpractice case that the privilege did not apply to communications that lawyers at the Schnader firm had with the firm’s general counsel in the underlying case. (Thompson Hine LLP, the sponsor of this blog, was one of 74 firms signing on to an amicus brief seeking reversal of the trial court’s ruling.)

In the underlying case, the Schnader firm represented the client in negotiating his separation from his employer. The firm did not negotiate an extension of the exercise period for the client’s vested stock options. When the former employer later advised the client that more than $5 million in options had expired with the termination of his employment, the client consulted the Schnader firm again about his remedies. In an arbitration before the Financial Industry Regulatory Authority (FINRA), the employer said that it was going to subpoena the lawyers who handled the separation agreement negotiation, and indicated that it was seeking to point the finger at the law firm as being partly responsible for any loss to the client.

That sent the Schnader lawyers to their firm’s general counsel for ethics advice. When Stock eventually sued the Schnader firm for malpractice, he sought production of 24 e-mails reflecting that advice.

The New York County commercial division court ordered the firm to turn over the documents. Without extensive analysis, the court agreed with the plaintiff client that the firm lawyers did not expect their communications with the firm’s general counsel to be kept confidential from the client. The court also invoked the “fiduciary exception” to privilege, saying that the client had “a right to disclosure from his fiduciaries of communications that directly correlate to his claims of self-dealing and conflict of interest.”

Trial court ruling is reversed

In a 28-page opinion, a five-judge panel of the Appellate Division’s First Department unanimously reversed.

The court rejected application of the fiduciary exception, ruling that the Schnader lawyers “had their own reasons, apart from any duty owed to plaintiff, for seeking the legal guidance … Because the purpose of the consultation with [the firm’s GC] … was to ensure that the attorneys and the firm understood and adhered to their ethical obligations as legal professionals, the attorneys and the firm, not plaintiff, were the ‘real clients’ in this consultation.”

The court put particular emphasis on two facts: first, that the Schnader firm’s general counsel had never participated in the client’s representation; and second, that the firm did not bill the client for the lawyers’ ethics consult with the GC. That solidified the court’s view that the firm and its lawyers were the clients, and entitled to the privilege protection available to other clients.

Relying on New York state ethics opinions, the court also said that “we do not believe that a consultation by attorneys with their firm’s in-house counsel on a purely ethical issue arising from the representation of a current client … inherently gives rise to a conflict of interest between the firm and the client.”

Adding to a trend?

In reaching its conclusion, the Stock court cited similar recent holdings from state high courts in Georgia and Massachusetts. The ABA has also taken the position that the fiduciary exception does not apply to confidential communications between law firm personnel and the firm’s in-house or outside counsel, even regarding the firm’s duties or potential liability to a current client. That favorable trend continues, with the opinion of this influential court.

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The Law for Lawyers Today is a resource for law firms, law departments and lawyers needing information to meet the challenge of practicing ethically and responsibly. Here you’ll find timely updates on legal ethics, the “law of lawyering,” risk management and legal malpractice, running your legal business— and more.

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